This Week's 5 Dumbest Stock Moves
Stupidity is contagious. It gets us all from time to time. Even respectable companies can catch it. As I do every week, let's take a look at five dumb financial events this week that may make your head spin.
1. Leave it to Beazer
Beazer Homes (NYS: BZH) is expanding its rental program.
This may sound reasonable at first. If the profitless homebuilder were simply moving to rent out some of its unsold properties or finished homes where the buyers backed out at the last minute, this would seem to be a sound move.
However, Beazer isn't renting out its own unsellable homes. Like a retro condo flipper, the real estate developer is actually buying foreclosed houses in Phoenix and Las Vegas and renting them out.
"Brilliant," you may be thinking. Beazer can now buy some of the depressed properties to eat into the glut that is making it hard for it do business profitably. Well, obviously it won't be buying every home. There are now more than 100 homesteads in its rental program. Beazer is promising that it will keep these transactions off its balance sheet, but what's the point? Analysts don't see Beazer returning to profitability for years -- if it even makes it that far. This game of trying to call the bottom on existing homes is a dangerous financial gamble for a company that should be focused on turning its flagship business around.
Take-Two Interactive (NAS: TTWO) may be in denial.
The envelope-pushing video game publisher posted disappointing quarterly results, with revenue falling by a larger than expected 11% and a substantially narrower adjusted profit than analysts were targeting.
Take-Two's guidance for the current quarter is even more problematic. The diehard gamer expects to post an adjusted loss of $0.55 to $0.65 a share on $70 million to $85 million in revenue. Wall Street's estimates were calling for a negligible $0.05 deficit on $203 million in revenue
There have been plenty of gloomy quarterly reports this week, but Take-Two makes the cut because it is actually sticking to its earlier guidance for the entire fiscal year.
Really? It's not as if the balance of the fiscal year is loaded with marquee releases, as key sequels aren't slated until next year. NBA 2K12 would be something to look forward to if the entire league wasn't weeks into a season-threatening lockout.
Believe the guidance at your own risk.
3. Cheap tablets
The buyer's regret window for early adopters continues to narrow.
Hewlett-Packard (NYS: HPQ) slashed the price of its TouchPad tablet by $100. The 16-gigabyte model is now available for $399. The unit with twice as much storage now retails for $499.
This is notable because HP didn't even begin shipping these bad boys until last month. A little more than five weeks on the market, and HP is already swinging a bold 20% price cut.
I don't have a beef with the new price. My only gripe is that this is where the price tag should have been on its release. Why would any upstart tablet -- especially one running Palm's fledgling webOS -- dare to hit the market by simply matching iPad's entry-level pricing?
I would say that this move was long overdue, but it's really just a month late. Unfortunately, this means that Palm loyalists who rushed to buy a TouchPad last month now feel cheated.
4. A tale of two titans
How many headlines did we see detailing how Apple (NAS: AAPL) lapped ExxonMobil (NYS: XOM) to take the market capitalization crown on an intraday basis on Tuesday and by the actual close on Wednesday? We obviously covered it, but optimism-starved outlets elsewhere where pitching this as some crowning achievement.
Well, let's bring it all back down to Earth. Apple may have lapped ExxonMobil in market cap, but it's still tens of billions of dollars away when it comes to the more accurate enterprise value weighing scale. Apple's gargantuan cash hoard is a differentiator here, and the accolades this week are unintentionally congratulating Apple for never returning some of that to shareholders through dividends and massive stock buybacks.
To be fair to Apple, ExxonMobil also would have probably never worn the crown if it wasn't for Exxon's $80 billion deal to buy Mobil a dozen years ago. In other words, it's not as if this was an organic achievement either.
My point: None of this matters. It's one asterisk-laden crown being handed to another asterisk-laden winner.
5. All in all it's just another brick in the Wal-Mart
Wal-Mart (NYS: WMT) has been selling digital music through its namesake website since 2003 and it decides to get out now?
Wal-Mart advised labels and its distribution partners that it will shut down its music store on Aug. 28. I realize that many diehard music fans didn't even realize that walmart.com was a hotbed for slightly discounted track and album downloads, but is that reason enough to shutter the offering when things are getting interesting?
Wal-Mart has suffered through eight consecutive quarters of declining comps, and some of that has to be the result of traditional media items going digital. Why would Wal-Mart choose to continue selling fading CDs over at least having its foot in the door with digital music?
The real head-scratching moment here is that Wal-Mart just integrated its Vudu video-streaming service into its website last month. Instead of that being a move to have a bigger presence in the digital delivery of media, it turns out that the world's largest retailer is simply replacing digital tunes with digital flicks.
That's just dumb, Wal-Mart.
Which of these five moves do you think is the dumbest? Share your thoughts in the comment box below.
At the time this article was published The Motley Fool owns shares of Apple, Wal-Mart, and Take-Two. Motley Fool newsletter services have recommended buying shares of Apple, Wal-Mart, and Take-Two, along with creating a diagonal call position in Wal-Mart and a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Longtime Fool contributor Rick Munarriz is a fan of dumb and smart business moves. Investors can learn plenty from both. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
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